The Federal Deposit Insurance Corp. recently issued a report on the Montgomery-based bank's August 2009 collapse, the biggest U.S. bank failure of the year and the sixth-largest in U.S. history.

The report said Colonial's actions have led to new policies so other banks cannot elude and ignore federal regulators the way Colonial did.

The report said Colonial thwarted federal regulators who were bringing increased pressure on Colonial by switching from a federal charter to a state charter 14 months before it failed.

But the report, which was supposed to supply answers about what caused the massive bank failure, also has led to more questions and more finger-pointing about who bears responsibility for the collapse.

Should the state ever have agreed to grant a state charter to a bank that may have been far too large for it to effectively regulate? Should the FDIC have been more straightforward with the state in pointing out that federal regulators were about to issue a cease-and-desist order to Colonial before the bank applied for the state charter? Was it the state's responsibility to find this out? When Colonial officials refused to cooperate in supplying the state with needed information, did Alabama regulators act quickly enough or were they intimidated by Colonial's size and power?

These facts still are being debated. What is not is that Colonial's collapse has had a major effect on banking policy.

The FDIC said Colonial's actions led to a clearinghouse of federal bank supervisors issuing a policy statement to discourage so-called regulator shopping, but that in Colonial's case the statement came too late.

The Federal Financial Institution Examination Council issued its statement in July 2009 -- the month before Colonial failed. The statement said that banks should not change regulators without a legitimate business reason.

"(Requests for a charter change) submitted while serious or material enforcement actions are pending with the current chartering authority or primary federal regulator should not be entertained," the agency said in its report.

The FDIC Office of Inspector General referred to the report in its Material Loss Review on Colonial.

Federal regulators at the Office of the Comptroller of the Currency were on the verge of issuing a cease and desist order to Colonial in June 2008 when the bank changed to a state charter, according to the FDIC.

"As a result, there was clearly a possibility that regulatory action to address risks at Colonial could be delayed, and in OCC's view, that was the case," the FDIC wrote.

The report said state regulators reacted quickly and eliminated the delay.

"Absent those efforts, however, the opportunity existed for Colonial to avoid supervisory action as contemplated by the July 2009 policy statement discussed above," the FDIC also wrote.

Tony Plath, a banking professor at the University of North Carolina at Charlotte, said state regulators were never appropriate for Colonial.

"They were clearly out of their league in dealing with Bobby Lowder," he said of the former Colonial CEO, chairman and president.

"Colonial gamed the system. At some point, a bank is too big to be regulated at the state level."

Plath also pointed to BB&T, which acquired Colonial when it failed, as an example of a bank that may be too large for its state regulator. BB&T is regulated by North Carolina officials. But Plath said its operations are so large and cover such a giant geographic footprint that it could be better monitored by federal regulators.

Trabo Reed, Alabama deputy superintendent of Banks, said his agency was the proper primary regulator for Colonial.

Reed said that his department followed its own procedures in issuing the bank a state charter.

But Alabama banking officials did not issue Colonial a cease and desist order until May 2009.

Reed insisted that the state order was much more expansive than the one proposed by federal regulators almost a year earlier.

Plath said that by the time the state issued its cease and desist order, little could be done to save Colonial.

"This was not a normal bank failure," he said.

Kevin Mukri, an OCC spokesman, said it is the responsibility of the agency acquiring regulatory control to understand a bank's condition, not the responsibility of the agency giving up control.

He declined to answer when asked whether the agency specifically informed Alabama state banking regulators of the pending order against Colonial.

The OCC did, he said, provide state regulators with all the information that was requested.

Reed said his office was unaware of the pending order when it granted Colonial a state charter. State regulators did not ask federal regulators about the order, but did ask Colonial if it had pending regulatory action, he said.

"If someone is subject to enforcement actions, we will not consider them," he said.

Colonial responded that it was unaware of any such action, according to Reed. Had Colonial lied in applying for a state charter, Reed said the state could revoke it.

Now that Colonial has failed, Reed said there is nothing the state can do to punish anyone from the bank who provided false information.

Alabama banking regulators complained in the FDIC report that Colonial executives became increasingly difficult to deal with and eventually stopped listening to regulators.

Now, regulators have a new law to deal with recalcitrant bankers.

Recently enacted Senate Bill 495 allows state banking regulators to remove or fine any person who causes a bank to suffer substantial financial losses. Banking officials also may bar such a person from working for any Alabama bank.

Reed said the law was not a direct response to Colonial, but it might be used against any former bank executives who try to take leadership roles with other state-chartered banks.

"We would have to evaluate each of them on their own," he said. "We would look at them very closely."

John Jahera, a professor of finance at Auburn, said the FDIC could have acted sooner when it learned Colonial officials had become uncooperative.

"The FDIC has the ability to impose sanctions," he said.

Alabama's state banking department, like most banking regulators, is funded by an assessment on its member banks. Under that formula, Colonial was one of the largest sources of funding for the agency.

Reed insisted that did not create an inherent conflict of interest.

"The money from a big bank would not be a factor," he said.

The department can replace any lost funding by simply raising the assessment on other banks, he added.